Dave McClure on his way to BC on “Geeks on a Train.” Photo via Kyle Kesterson.

Dave McClure is not your typical venture capitalist. He wears T-shirts and flip flops, and cusses like a sailor.

The term angel could not be more oxymoronic when applied to McClure.

In the course of his 30-minute talk at the GROW conference in Vancouver, B.C. today, the founder of Silicon Valley’s 500 Startups dropped the F-bomb and the word asshole more than a dozen times. And nothing raises the former PayPal executive’s blood pressure like khaki-wearing, slick talking venture capitalists who he believes suck the life out of most things they touch.

McClure says there’s a big shift in early-stage venture capital from bankers to operators, highlighted by the switch from suits to flip flops.

Wearing a suit is like the “stupidest thing” if you are trying to create trust with geeky developers who are trying to start a company. “They are scared shitless of people in sales in suits,” he said.

Even worse, McClure notes that most venture capitalists aren’t very good when it comes to making money, pointing out that about 75 percent of VCs do not even return 1X capital to investors.

“The last 10 to 20 years you’d think that it has been all about VCs making money, because that’s all we hear about,” said McClure. “But really it is all about VCs failing and failing to return capital and being f**king idiots. VCs are stupid. They are absolutely stupid. Does anyone want to challenge that statement? Does anyone think that VCs are not stupid?”

He added that the returns for venture capital “absolutely suck.” But it is not just that most VCs aren’t good at making money.

Nope, McClure said it is made even worse since most VCs are “insufferable, arrogant, fucking assholes” who don’t make bets early enough; have no idea what makes a good product and don’t know how to build communities.

“I could go on and on and on,” he said.

“It’s relatively easy if you actually give a fuck about something in technology, and you care and you track it,” he said.

Wow, tell us how you really feel Dave.

McClure thinks alternative investment vehicles such as Y Combinator, 500 Startups and his beloved Angel List are going to eat the lunch of traditional venture capitalists, many of whom are stuck in a traditional strategy of making a few bets in hopes of achieving $1 billion outcomes.

Well, as we all know, getting $1 billion outcomes is “really, really f**cking hard.” That’s why McClure is looking to place hundreds of bets on startups, hoping he can hit dozens of singles (like Ichiro) rather than a few home runs (like Barry Bonds).

He expects about 20 to 25 percent of the 500 Startups’ portfolio will produce a positive outcome, with roughly 5 percent of the companies returning 20X or better, with the firm shooting for $100 million outcomes, rather than $1 billion outcomes.

The jury is still out on whether McClure’s model will work, with critics labeling it the “spray and pray” approach to investing.

McClure is most bullish on Angel List, which he encouraged audience members to tap into regularly.

“If you ignore everything else that I am going to say today, and I wouldn’t be offended if you did, use Angel List. It is really amazing…. It is where all of the startups and investors are, so if you are not on there, either you are intentionally trying to hide or you are being a fucking idiot.”

John – great to see you today. Just one nitpick – when Dave (or anyone, myself included) makes big, outrageous claims, it would be supercool if Geekwire posted the actual data (eg what is the avg venture return, what about the top 25% of firms, how’s that compare to YC/Techstars/etc).

I love Geekwire and I think you have a chance to stand out in the field by fact-checking those you cover.

johnhcook

Thanks Rand. Great talk today. As you know the world of VC is rather opaque, and could use a dose of transparency. It’s still pretty early to judge returns from the likes of YC or TechStars.

Dave McClure did qualify his remarks by saying that the top 5% or less in VC can do well. However, his remarks appear, at the very least, to be backed up by the report conducted by the Kauffman on VC returns, which I linked to at the end of my story. Kauffman found that 62 out of 100 funds that it invested in failed to exceed returns available from the public markets. Not a great outcome, though you are correct that the top quartile likely did much better.

I think Dave’s overall point, while delivered in strong words, is that the VC business, which is under pressure, is ripe for disruption. Thanks again for the comment.

http://www.randfishkin.com/blog Rand Fishkin

Awesome John – Kauffman stats are exactly the kind of thing I was hoping to see alongside Dave’s comments. Thanks!

not my job to report the facts, & agree john should reference stats… tha said, pretty sure the data is even worse than my off-the-cuff remarks.

http://www.randfishkin.com/blog Rand Fishkin

Sounds like the stats are quite a bit better than what you cited in reality, but certainly wouldn’t disagree with your premise that there’s disruption opportunity.

And I agree – when giving your talk, you’re welcome to cite or not cite whatever you want. I just wanted to see the form of journalism where data is brought into play to question sweeping assumptions. I think John should do it to me, too! Only fair :-)

I would really really really love to see a compare/contrast between VC and Hedge Fund performance because the groups have very similar compensation models.

AdamBenz

I started a consumer electronics with a person I never met before (but came highly recommended), we never raised money, we paid it all out of pocket and it even came to credit cards at the end. And in the end, we sold the company for a lot of money, we owned it 100% and had no debts (credit cards aside). I know that the VC economy is needed to get things started, but its a losing model for founders.

Kauffman: “Over the past decade, public stock markets have outperformed the average
venture capital fund and for 15 years, VC funds have failed to return
to investors the significant amounts of cash invested, despite
high-profile successes, including Google, Groupon and LinkedIn.”

johnhcook

Yes, I actually posted a link to that report at the bottom of this story for additional reference on the performance of VC.

http://abdallahalhakim.tumblr.com/ Abdallah Al-Hakim

there is definitely no sugar coating the message from @davemcclure:disqus :) One thing that 500 Startups is doing is also investing in startups outside the US – I know of at least one in the Middle East, Jeeran, that recently received investment and my understanding is that they are exploring opportunities in Brazil and Mexico. This is something that I am interested in watching how it develops

http://kidmercury.posterous.com/ kidmercury

bonds was way more than a home run hitter. check his stats on number of walks drawn. the genius of bonds was that he didn’t swing for the fences, but rather forced pitchers to throw strikes — which in turn gave him good opportunities to it home runs.

i appreciate the rest of this article, though.

Mark S

Amen, @DC. The VC’s are the same guys who told us during Web 1.0 that ‘it’s not about the money’ – still waiting for any of them to give all their millions to charity. They don’t love the tech and wouldn’t know good code if it bit them in the @ss.

Ray Burt

Always better to be a VC partner than invest in a VC fund for all these reasons. Running VC funds is a great moneymaker…..at all investors’ expenses.

Justin Gaynor

Barry Bonds hit a lot of single AND a lot of home runs. Don’t forget he was a career .381 hitter.

http://500startups.com/ Dave McClure

***and, a steroids user. great player even w/o juice, but now tarnished forever.

http://twitter.com/keithbates1 Keith Bates

McClure is tedious. He’s out (again) to grab attention for himself, and foul-mouthed bashing of VCs is a cheap way to do it. McClure plays to the crowd. If 500 Startups is such a superior model, let him post the results to prove it, if he hasn’t already done so. And let him keep posting those results as the current bubble ends. Let’s see 10 years from 500 Startups. Then we can judge if he’s got a better model.

xmichaelx

Agreed. It’s easy to tell the losers from the winners. The losers talk, and winners show.

McClure talks. And talks. And talks.

http://500startups.com/ Dave McClure

you noticed!!! I’m so happy, I can now live a fulfilled life… thx 4 making my day :) #uCompleteMe

http://500startups.com/ Dave McClure

me? out for attention?!? shocked! I am SHOCKED there is GAMBLING going on in Casablanca! #NoShitSherlock

http://twitter.com/keithbates1 Keith Bates

Since McClure thinks VCs are so “stupid” and “arrogant”, none of the startups at 500 Startups will be taking VC money, right?

It will be fun to watch the cram-downs when the current incubator bubble pops and McClure’s outfit is desperate to top-up all his little seed companies and all the VCs recall his insults. Bubbles always breed arrogant jackasses.

Does McClure post his track record anywhere? It’s easy to make claims against the terrible VC returns but I would love to have something to compare those returns to the angel returns such as 500StartUps.

John S. (HBS alum)

David white trash heritage as an Appalachian redneck unfortunately is coming home to roost here, and giving the good people of West Virginia a really bad name. It you look and examine the roots of his plaint, you will find that this twisted rogue is a very jealous person, beset by many personal demons (ask his colleagues at Paypal). Most of Sand Hill Road absolutely hates this guy, VCs are an essential part of the ecosystem, I know, I am a LP of several tier 1 funds and David is doing a good making enemies when he desperately needs at least 1 or 2 friends. I know of one fund that has a dart board with his picture on it, and, as an LP I can tell you that 500 startups has a terrible ROI, he does not have one hit. He is a loser, period that needs to be run out of town on a rail.

Well to be fair Dave, that’s not ‘one hit’. It’s seven. I’m sure that’s what he meant…

http://www.facebook.com/moegdaog Moejii Osman

Lol atttta boy!!

http://www.drivenforward.com/ Glen Hellman

I’m not a fan of McClure’s delivery and yet in your critique of him you emulate his name calling style bereft of facts.

ivy league? who cares?

I’d prefer David’s “white trash heritage as an Appalachian redneck” (whatever that means) over a self-important ding-dong that needs to let us know that his comment comes from an “HBS Alum”. Do you think your comment has more weight because of you’re prestigious papers?

Does a day go by that you don’t mention that you’re an HBS alumnus? Because one can usually pick-out an Ivy Leaguer because of the frequent mentions.

If you draw a graph with on its X-axis how much one talks
and the on its Y-axis, how important it is, many VC’s would be on the top left.
Dave McClure is definitely at the opposite bottom right corner.

http://500startups.com/ Dave McClure

that’s a very thoughtfully constructed graph :)

Marc Rochman

Glad you take it with humor:)

Hal Missen

First, Dave McClure is not a venture capitalist. Minor fact correction. Second, Dave doesn’t have a track record yet to speak in such ill-mannered terms, so do not understand where his arrogance comes from.

http://500startups.com/ Dave McClure

actually, since I manage other people’s money (our first fund was $29M), I am most certainly a VC. however, previously I was an angel, and an investor in both Mint.com (acquired by INTU for $170m) and Slideshare (acquired by LinkedIn for $119m). my personal investments were up 2x in cash over 6-7 years, plus another 1-2x on paper. so I’m doing ok. and our first fund has had solid exits (including Wildfire, sold to Google for $350M).

http://twitter.com/keithbates1 Keith Bates

Cherry-picking a couple of wins doesn’t tell us anything about your performance as an investor. It’s like a gambler who just remembers his victories and never mentions his losses. In the investing game, portfolios get measured on overall results.

http://500startups.com/ Dave McClure

poster-child wins aside, our overall portfolio is currently up ~50% over the past 2 years, and we appear to be doing ok.

still, whether or not we ultimately make money isn’t the point i was making — it’s that clearly the traditional model for VC has rather terrible industry performance on average. continuing to do things the same old way given such poor performance is the definition of insanity.

Michael

Despite what some VCs commenting here think about Dave, I want to share a perspective some entrepreneurs like myself believe as we search for funding:

A minority of VCs travel to educate, inform, entertain and bitch-slap startups into getting their acts together. They teach and then preach. They’re easily approachable, transparent, and likeable. Whether they’re outrageous or exaggerate statements to be emphatic, are out-of-line, or occasionally wrong, they are instantly forgiven because they sacrificed their time and reputation to put themselves out there. These VCs are here to stay because they are accessible and make entrepreneurs better people.

Running a startup that’s picky as hell about which investors we want to work with, we prefer to approach VCs that are passionate, have a vision, and are “trying to change the world”. This should sound familiar because Dave reminds us of ourselves and every other entrepreneur struggling to push beyond the status quo.

http://www.drivenforward.com/ Glen Hellman

I guarantee that Bill Gates, Steve Jobs, Zuckerberg, Page and Brin didn’t need a VC to educate them. I’d rather invest in a team that gets it then one that needs to be spoon fed. The VC model is proven. Dave’s model has potential. Potential is an epitaph until it’s proven.

Michael

No doubt the teams that get it feel the same. As a VC, have you noticed a marked improvement in the way that entrepreneurs pitch or present themselves over the years? I can imagine how frustrating it is for VCs to sit through poorly delivered pitches and it’s now immediately obvious when a pitch has been refined using best practices.

I can’t speak to whether or not Dave’s approach is “better” or what other VCs think of him. I can guarantee that his attitude towards entrepreneurs wins their attention which in turn brings more deals towards 500 Startups because I see it and hear about it all the time. There’s no disputing that the VC model is proven, but is there room for improvement?

http://www.drivenforward.com/ Glen Hellman

Agreed room for improvement. But painting all VCs with one brush is ridiculous. Some VCs suck, some VCs are just OK, some VCs are top notch. The only thing that all VCs are is VCs

http://www.drivenforward.com/ Glen Hellman

Who cares about the boorish, overdone language. Blanket statements condemning a part of the ecosystem that you and your constituents depend is just stupid. It offends a powerful and useful part of the ecosystem, it doesn’t help 500 Startups, and it certainly doesn’t help 500 Portfolio companies seeking additional capital from VCs who would have to partner with and/or sit on a board with a bomb thrower.

I’m sure the TechStar guys and other accelerators are overjoyed.

guest33

The last 3x meetings I’ve had with VCs were nearly identical. Not my pitch. But, the list of boxes that each of the VCs felt compelled to check off (or, not). These were mindless meetings. No matter what I said didn’t even matter, unless it meant a box was checked off. I’m quite certain not one of the remembered the actual technology or product 5 minutes after I left the room.

Now, I have raised money before. From some pretty big names back in the ’90’s…so, it’s not like I’m a newb here. But, truly, VCs at this point are all looking for pitches to fulfill the magical checklist of the week (until next week’s is published)…

McClure is a rare bird. Not for everyone. But, he actually seems to LISTEN (despite the fact he talks alot). He also listens. That’s the rarest of the rare.

http://www.facebook.com/Michael.T.Barber Michael Barber

YEEEEP! They call it “spray and pray”…hmm, if you wear a suit and go to Wall Street, they call it “diversification”.

http://venturecompany.com/ Georges van Hoegaerden

Investor socialism is by economic principle incompatible with finding the outlier of innovation. That makes Angel investors on average even worse performers than VC (only 5 or so VCs make consistent monolithic venture style returns, of 790 poser VCs, according to an admission from a renowned money manager).

Why do we throw out the concept of a meritocracy when it comes to evaluating those who finance?
Entrepreneurs should stop dating subprime investors, as it makes them and their inventions by definition subprime too. If you want to marry the cool chick, be yourself. If you want to engage with a top VC, be yourself and show them the way to success.
Never, ever submit to subprime or it will be the kiss of death to your idea.